By Christopher Condon, Rich Miller and Jeanna SmialekFederal Reserve Chairman Jerome Powell said interest rates are just below the so-called neutral range, softening previous comments that seemed to suggest a greater distance and spurring speculation central bankers are increasingly open to pausing their series of hikes next year.Treasuries and stocks rose, as Powells just below comment tempered remarks he made last month that markets had interpreted to mean that a larger amount of tightening was likely.
Speaking at an event on Oct.
3, Powell said that we may go past neutral.
But were a long way from neutral at this point, probably.In his speech Wednesday to the Economic Club of New York, Powell said the Feds benchmark interest rate was just below the broad range of estimates of the level that would be neutral for the economy -- that is, neither speeding up nor slowing down growth.If rates are closer to what policy makers ultimately judge is the neutral level, that could signal the Fed will tighten monetary policy less than previously projected.
Eurodollar futures pricing reacted to Powells comments, reflecting even firmer expectations that the Fed will hike only once next year.Powells remarks on the economy and monetary policy were seen as keeping the Fed on track to raise interest rates in December.
They offered few explicit clues, however, as to how many hikes he thinks will be necessary in 2019.
Powell repeated his view that the Fed will have to be especially responsive to incoming economic data.We also know that the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realized, he said.
While FOMC participants projections are based on our best assessments of the outlook, there is no preset policy path, Powell said, referring to the central banks Federal Open Market Committee, which sets interest rates.Investors SkepticalEven before the speech, investors had grown skeptical that Fed officials will reach their own median projection for three hikes in 2019 against a backdrop of slowing growth and uncertainty over the United States s ongoing trade dispute with China.As always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation, Powell said.The Fed still sees the economic outlook as relatively strong.
My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent, Powell said in the speech.On the same day the Fed released its first-ever semi-annual Financial Stability Report, Powell highlighted some concern over corporate debt levels, pointing especially to highly-leveraged borrowers who may surely face distress if the economy turned down.
Still, he judged the area posed little systemic risk, labeling broader, overall risks to financial stability as moderate.Such losses are unlikely to pose a threat to the safety and soundness of the institutions at the core of the system, he said.